I have a 80 GB iPod and it only has 74 GB of free space to start with.

Note that the discrepancy here is due to how a GB is defined by storage device manufacturers and by the software. For the storage guys,
1 GB (gigabyte) is 1,000,000,000 bytes. However for the OS, 1 GB (gibibyte, GiB) is 2^30=1024*1024*1024=1,073,741,824 bytes. So 1 gigabyte = 0.931 gibibyte.

So that's why your 80 GB (80,000,000,000) iPod hard disk is only counted as 74 GiB by the OS.

What is reserved space and how do I go about turning it off... Is that the social friend thing?

While your ZuneHD is plugged in, start the software and enter your pin to unlock screen if necessary so the ZuneHD says "connected" on the screen. Go to settings -> device and along the left side of your screen an option is "adjust reserves space" or something of the sort. In there, you can reduce it to 1%, however, when I did it, my Zune told me that all space was free (all of it was free because I had just bought it).